AFF Sentinel Vol.7#12

Making Life Difficult for American Business

After failing Wednesday to end amendments to the financial overhaul
bill, the Senate Thursday got the necessary 60 votes to bring a vote
Thursday night or Friday. The cloture vote had failed Wednesday because
two Democrats wanted even tighter restrictions on banks.

With voluminous sections re-shaping and restricting the American
financial sector, the Senate is fighting to add more regulations to over
1,400 pages, certain that they can prevent another financial meltdown
without straitjacketing the American economy. Yet with all this
Congressional "preventive intelligence," the bill totally ignores
a key cause of 2008's meltdown: their direction to banks and Fannie Mae
and Freddie Mac to loan to those previously considered not mortgage
creditworthy just because Congress said so. Thus did they demonstrate -
and now reiterate - their incomprehension of business, credit, incentive and consequence.

For instance, part of the legislation would make it illegal for banks to charge more than 50 cents for the convenience of spitting out cash to you anywhere in the country from an ATM machine. When I'm traveling thousands of miles from my home bank, I am ecstatic to pay a two or three dollar fee to the banking system to get some cash from my account.

Now any business moron can figure out the banks will: a) replace the revenue from their current ATM fee structure by raising interest rates or fees on our cards or b) start yanking out ATM machines that don't generate enough profit at the government- mandated maximum or phase many out as they age and need replacement. Who is the loser here? The banking customer.

This kind of mindless, shortsighted management- by-Congress percolates all through this bill as it must. Congress cannot mandate results and methods and process without drastically altering the system from what -for the most part - was a system designed to serve business and customers. Was it perfect? Did it need some adjustments? Of course. Did it need a government takeover? Certainly not.

In fact, much of the chaos already wreaked was a direct result of Congressional management - particularly Barney Frank and Chris Dodd - of the mortgage market, by overriding business management with liberal, emotional goals instead. Not understanding the power of millions of tiny errors to bring down the system, they reasoned the banks could afford to help folks who couldn't pay.

So now, we are on the cusp of a whole new consumer protection agency added to the dozens of agencies already doing so, which will certainly put restrictions on the financial sector that will make credit tougher to get for citizens and small businesses. Many young people today haven't dealt with the kind of asset-based lending that used to keep young people and small businesses from borrowing or existing. Turn the screws tight enough on financial institutions and we'll end up back where only those who don't really need the money can borrow it.

Sen. Judd Gregg (R-NH), for example, opposed the bill's ban on derivatives trading by banks, arguing that the ban could raise the cost of lending and hurt small businesses because it prevents banks from hedging their risks properly ("Chris Dodd: 'The Mad Hatter' of Derivative Regulation," Wall Street Journal, 5/19/10). We've previously outlined how the bill would hammer companies who use derivatives on a regular basis to manage risk without the need for additional regulation or being forced onto exchanges. This trading, especially in agriculture, was not the cause of 2008's meltdown.

Other provisions would outlaw proprietary trading in the markets - that is, banks trading with their own money. Any legal nerdling can see lucrative new business for big legal firms and investment bankers as they figure out how to carve up big banks in new slices, so that they can do whatever they wanted to do, under another name or subsidiary. In fact, the Journal ran an editorial explaining how insurance companies, doctors and hospitals are already reorganizing, selling and merging in order to meet Healthenstein's profit and cost prescriptions to avoid going out of business altogether ("No, You Can't Keep Your Health Plan," 5/1810).

But Congress and this Administration cannot abide businessmen and citizens deciding how to allocate their time, capital and resources themselves. They want to control those decisions in an every tightening spiral, until government does it all. The term capitalist - something reviled by the leftist, big government proponents - derives from the fact that our system in the USA historically allowed private citizens, and the entities they owned as shareholders, to easily own capital and property. That day is fast coming to an end unless voters take back their freedoms in November.